Correlation Between American Funds and Schwab Dividend

Can any of the company-specific risk be diversified away by investing in both American Funds and Schwab Dividend at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining American Funds and Schwab Dividend into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between American Funds American and Schwab Dividend Equity, you can compare the effects of market volatilities on American Funds and Schwab Dividend and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in American Funds with a short position of Schwab Dividend. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Funds and Schwab Dividend.

Diversification Opportunities for American Funds and Schwab Dividend

0.95

Correlation Coefficient

American Funds  Schwab Dividend

Almost no diversification

The 3 months correlation between American and Schwab is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding American Funds American and Schwab Dividend Equity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Dividend Equity and American Funds is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on American Funds American are associated (or correlated) with Schwab Dividend. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Dividend Equity has no effect on the direction of American Funds i.e., American Funds and Schwab Dividend go up and down completely randomly.

Pair Corralation between American Funds and Schwab Dividend

Assuming the 90 days horizon American Funds is expected to generate 1.33 times less return on investment than Schwab Dividend. But when comparing it to its historical volatility, American Funds American is 1.05 times less risky than Schwab Dividend. It trades about 0.14 of its potential returns per unit of risk. Schwab Dividend Equity is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  1,612  in Schwab Dividend Equity on August 31, 2024 and sell it today you would earn a total of  105.00  from holding Schwab Dividend Equity or generate 6.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

American Funds American  vs.  Schwab Dividend Equity

American Funds American

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Funds American are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, American Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Schwab Dividend Equity

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Dividend Equity are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Schwab Dividend may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with American Funds and Schwab Dividend

The main advantage of trading using opposite American Funds and Schwab Dividend positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, Schwab Dividend can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Schwab Dividend will offset losses from the drop in Schwab Dividend's long position.

The idea behind American Funds American and Schwab Dividend Equity pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.